Pension Scheme Investment in Private Markets

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Pension Scheme Investment in Private Markets

Public pension funds issue retirement benefits to many of the public servants. Beneficiaries contribute money to the fund throughout their careers, and then once they retire, they are guaranteed steady retirement payments from the pension fund. However, many of the public pension funds underfunded due to investment choices and economic downturns. To make up for their underfunding, many public pensions funds have turned to alternative investments, like private Markets. Pension fund managers are attracted to private equity because of the private Market industry’s reputation for high returns. While private equity’s reputation presents the hope of high returns and access to unique investments, it also has several detriments such as lack of transparency and high fees. These types of downfalls are exactly why many underperforming pension funds have recently faced criticism for their private Market investments.

However, not all pension funds that invest in private equity suffer from bad performance.  Pension funds with private equity portfolios that perform well prove that private equity investments can be lucrative. Further, private equity investments allow pension funds to diversify their portfolios by giving them access to assets that are not available on public markets.